Busted marriages and college financial aid

Applying for college financial aid is complicated no matter what your situation, but for children of divorced parents, it’s even more so. The amount of federal financial aid a student is eligible for can change significantly depending on which parent the university aid formulas consider to be the primary provider.

In families where only one parent takes care of the child, it’s easy to know who to list, but for families with joint custody arrangements, decisions about which parent the child lives with the majority of time or which parent provides more financial support can have major implications for college financial aid. (Related: College savings calculator )

The FAFSA is what the federal government and most colleges and universities rely on to formulate students’ financial aid packages. The FAFSA asks about the parents’ marital status, but FAFSA’s definitions aren’t the same as the legal definitions of marriage and divorce or separation.

What FAFSA cares about is whether a student’s legal parents (biological or adoptive) live together in the same household. If they live together — regardless of whether they are unmarried, separated, or divorced — FAFSA requires information about both parents . Parents who are legally married, but lead separate lives and live in separate households are not considered married for FAFSA purposes. In this case, and in the case of divorced parents who live separately, the student only needs to provide information about the parent he or she lived with the most or who provided the most financial support in the past 12 months. FAFSA calls this parent the “custodial parent,” regardless of who has legal custody.

Students with divorced parents

When a student lives equally with both divorced parents and receives equal financial support from both, choosing the parent with the lower income for the parental financial section on the FAFSA creates the best chance at qualifying for maximum financial aid. But technically, the student needs to live with that parent at least one more day of the year or receive slightly more financial support from that parent to list them as their custodial parent.

FAFSA considers child support and alimony, however, so having the student live with the less well-off parent won’t necessarily help increase financial aid awards if that parent receives considerable child support and/or alimony from the better-off parent. Students in borderline situations can use the College Board’s expected family contribution calculator to see which parent to list as the custodial parent on the FAFSA if they want to maximize their aid eligibility.

Another important step is to submit the FAFSA as early as possible because some aid is distributed on a first-come, first-served basis, according to independent college counselor Gina Nisco, founder and president of Positive Next Steps in Connecticut.

Look at the beginning submission date, not the final deadline, to determine your timeline, and be aware that FAFSA has permanently changed its beginning submission date. Instead of Jan. 1, it is Oct. 1. (The deadline remains June 30.) This new beginning submission date means parents will use their income and tax information from 2016 for the 2018–2019 school year, not their 2017 information like they might have expected. The 2019–2020 FAFSA form, available Oct. 1, 2018, will use 2017 tax information.

School policies may differ from federal policies

Many colleges and universities use their own formulas to award financial aid. Students applying to these educational institutions will need to complete both FAFSA and the school’s own financial aid application; 249 schools and scholarship programs use a form called CSS/Financial Aid PROFILE (CSS stands for College Scholarship Service), according to the College Board. Some of these schools and programs, unlike FAFSA, want information on the noncustodial parent’s finances and may ask you to provide it through an institutional form or through another form called Noncustodial PROFILE.

Why do schools request information on the noncustodial parent when FAFSA doesn’t? It’s a matter of individual school policy.

Harvard’s financial aid policy , for example, states, “We feel strongly that both parents have an obligation to support you, and a divorce or separation does not change that obligation. We look at each case individually, and we make every effort to be sensitive to particular family circumstances when deciding how much to ask from each parent.” Harvard also requires information about the new spouse and dependents if either parent is remarried — not just the custodial parent listed on the FAFSA. The college arrives at a parent contribution figure that the parents and students are responsible for dividing up.

Although schools may require financial information on both parents, they still take the divorce into account in their financial aid calculations by factoring in the costs of living in separate households, writes college financial aid advisor Paula Bishop in an article for Money Magazine.1

Parents who are married and live together share one mortgage payment, one set of utility bills, one set of property taxes, and so on. Parents who are divorced and live separately each pay these costs, meaning that both parents together may have less disposable income to contribute toward college costs, especially if they haven’t remarried. But if either parent has remarried, they may have more resources to pay for college.

In a situation where the custodial parent remains single and the noncustodial parent has remarried and both biological parents will help pay for the student’s education, FAFSA-only schools give an advantage to students with divorced parents. Schools that ask for information on the noncustodial parent distribute aid in a way that some people would consider more equitable.

Families that don’t want the noncustodial parent’s finances to be factored into the equation — because they’re purposely trying to qualify for more financial aid or because that parent isn’t willing to contribute to the student’s college fund — should have students apply only to educational institutions that don’t look at this information.

In cases where a student wants to apply to a school that does require the noncustodial parent’s information but that parent won’t contribute, an exception is sometimes allowed if it can be proved that the non-custodial parent has a history of not supporting the child.2

Parents should call financial aid offices to ask about their specific parental disclosure policies, because information online is sometimes outdated and deadlines for financial aid are tight.

Those families who find themselves disadvantaged by the limited information FAFSA requests might do better applying to schools that use CSS/Financial Aid Profile. Nisco said the CSS is a much more extensive form than the FAFSA and will also allow for any special considerations such as high medical bills or loss of income.

For parents who aren’t divorced yet but are planning to do so, it may be worth hiring an attorney who can structure the divorce settlement in a way that will ease the burden of paying for college.

Since the custodial parent is the one the student primarily lived with or who provided the most financial support for the last 12 months under FAFSA guidelines, and since schools often require a copy of the stipulation of settlement and judgment of divorce, parents must plan in advance, said matrimonial and family law attorney Todd A. Spodek, managing partner of Spodek Law Group in New York City.

Spodek said any divorce agreement should have a provision in which the less-moneyed spouse becomes the residential custodial parent prior to enrollment in college and should state that this arrangement will supersede the prior arrangements and not be a basis for an upward modification in child support.

Spodek added that his firm often structures divorce settlements to require both parents to contribute to a 529 plan, a tax-advantaged college savings plan, and that it matters which parent owns the plan for financial aid purposes.

“If the custodial parent owns the 529, then aid can be reduced by 5.64 percent of the account’s value, but distributions are ignored. However, if a noncustodial parent has the 529, then it will not be deemed an asset, but the distributions count as income and can reduce aid by a staggering 50 percent,” he said. “For this reason, the less-moneyed, custodial parent should own the 529.”

Know the rules

It’s best to learn how the financial aid rules work for divorced families well ahead of time, before getting serious about choosing colleges and universities to apply to. What you learn about what schools will expect each parent to contribute will help you guide your child toward applying to affordable options, and it will reduce the chances of your child facing heartbreak or crushing student loan debt later.

One of our financial advisors can contact you to discuss taking care of loved ones, a family business, or a group of employees.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel.Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company

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